Back-to-School, eCommerce Help Boost August Retail Sales by 0.7%

U.S. consumer spending unexpectedly rose 0.7% in August, reversing a slump in July and defying concerns that a surge in COVID cases and business restrictions would crimp consumption.

Economists had been expecting a second month of declines but took the gains in retail as a sign that Americans were willing and able to spend as students prepared to return to the classroom.

The government’s initial estimate of retail and food spending last month came in at $629 million, with online sales jumping 5.3% month to month. General merchandise stores saw growth of 3.5% and department store sales rose by 2.4%. Furniture sales also grew by 3.7% last month, and food and beverage retailers saw an increase of 1.8%.

The growth was slightly dragged down by lagging car sales, which fell 3.6% amid a microchip shortage that continues to drive up prices and limit inventory. Minus motor vehicles and parts, the government estimated retail and food sales rose by 1.8%.

Electronics and appliance stores also struggled in August, down 3.1%, as did sporting goods, hobby and book stores, which saw a 2.7% decline.

At the same time, the Commerce Department revised its July results lower, to -1.8%, from the initial report of a 1.1% month-over-year decline.

Read more: COVID Concerns Trigger 1.1 Pct Slump In July Retail Sales Amid Swirl Of Conflicting Factors

Expectations vs. Reality

Economists and Wall Street analysts had expected retail sales to continue to fall in August due to the continued spread of the COVID-19 delta variant and a large drop in auto sales. Nevertheless, monthly retail sales reports have been a roller coaster of ups and downs since March’s 11.3% increase on the back of stimulus checks, suggesting that consumers are far from settled into old spending habits.

This flies in the face of comments made by National Retail Federation (NRF) Chief Economist Jack Kleinhenz in June when the trade group revised its forecast for retail sales across 2021. At the time, Kleinhenz said it was clear “that the U.S. economy and retail sales are growing far faster and more steadily than anyone could have expected just a few months ago.”

But that was before the delta variant became the dominant form of the coronavirus in the U.S., which helped lead to a 13.4% decline in consumer sentiment last month, according to the University of Michigan Consumer Sentiment Index. Still, NRF President and CEO Matthew Shay said in a statement that the increase in August retail sales “reflects the continued strength of the American consumer and the resilience of our nation’s retailers.”

“We maintain our confidence in the historic strength of consumers and fully expect a record year for retail sales and a strong holiday season for retailers,” Shay said.

Mastercard earlier this week projected a 6.8% year-over-year increase in retail sales between October and December and an 11% increase compared to 2019.

Related: Holiday 2021: Pent-Up Consumer Demand, Test of In-Store Experience For Retailers

“In the near term, meaning through the holidays, we’re in a really good environment for the consumer,” Steve Sadove, senior adviser at Mastercard, said in an interview with Karen Webster. Pointing to savings rate levels and low-interest rates, he said he sees “a very healthy environment” and no signs of a slowdown.

The Long View

To be sure, retail sales are still seeing a vast improvement versus last year, with total retail and food sales up 15.1% compared to August 2020. Clothing has seen the most year-over-year growth, at 38.8%, as people refresh their wardrobes, and department store sales jumped 28.6%. Even restaurants, which saw no month-to-month growth in August, saw year-over-year sales increase by nearly 32%; and electronics stores had an 18.1% increase in sales.

“The consumer remains rock solid despite the trifecta of macroeconomic headwinds we’ve seen this year, including tapering off of government stimulus, elevated COVID-19 infections and ongoing supply chain challenges in the form of shortages of labor and goods,” Kleinhenz said in a statement.